10 THINGS YOU SHOULD KNOW ABOUT STARTING AN IT CONSULTING BUSINESS
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1 10 THINGS YOU SHOULD KNOW ABOUT STARTING AN IT CONSULTING BUSINESS It takes more than a business card and some organizational ability to start your own consulting business. It requires a host of skills, from accounting to time management, and you can expect more than a few hurdles in your path. The key items in this list will help you determine whether you re ready to take on the challenge. 1. Begin with a gut check. Before leaving your job or shelling out bucks for business cards, you need to ask yourself several questions: What skills do you plan to consult with? Deciding what skills you re going to market is key to being a successful consultant. Presumably, you have some type of programming or networking skill that someone else needs otherwise you won t be able to step into the market with ease. There are a wide variety of skill niches, from VB programmer to e-commerce site designer, that are in demand by clients who don t have the staff skills or time to train employees. Can you handle long hours? You need to seriously consider the hours a consulting business involves, especially at the outset. If you ve done any consulting on the side, you already know about long hours but running your own business ups the ante. Do you know basic accounting? Every consultant needs to be able to do basic accounting to document project work, track and keep tabs on work time, and monitor expenses and client billing. You don t need a full-time accountant, but you do have to be able to stay on top of things. Do you dread collecting on unpaid bills? As a consultant, you have to accept the role of bill collector. You ll need to set up one day a month to generate bills and track those individuals who haven t cut you checks. This is your accounts receivable. It s essential because some of your best clients can be the worst when it comes to remitting payment. Late payments by clients can kill a business before it gets up and running. Do you mind doing your own marketing? Every business needs marketing to get exposure and clients, and you have to be willing to sell yourself. This nontechnical aspect of being a consultant is one of the top issues that can kill a business if not handled right. You will always need to be Can you handle long hours? You need to seriously consider the hours a consulting business involves, especially at the outset. making contacts to get more business. It s imperative that you constantly ask current clients for more work and also ask them if they know of other similar businesses that can use your skills. This is an ongoing networking process that you need to develop to establish a long-term business. 2. Determine your expected income. The best way to start your consulting business is to get a client prior to starting out on your own. It s easy to get part-time work to see whether it will be viable before you go full time. This will also give you an idea of what kind of income you can expect when you go out on your own. The key figure you need to determine is what dollar amount you are worth to a client on the open market. Let s say you decide to bill a client to work on their computer system. You decide to charge $30 per hour for your services. This gives you a target figure to go after. Consulting is built upon billable hours. A calendar year has 2,000 billable hours, based on a 40-hour week and an eight-hour billable day. This also takes into consideration a two-week vacation. So if you bill $30 an hour for 2,000 hours, in a year you would make $60K gross income. This type of calculation will give you an idea of what your revenue will be. 1
2 3. Develop a business plan. Some consultants spend quite a bit of time developing a great business plan, but never get any billable income. So you might want to hold off on drafting that plan until you get some revenue started. In fact, the best time to write a business plan may be when you re getting the feeling that you have too much work to do and are beginning to turn away business. At this point, take a weekend, sit down for a few hours, and develop a basic business plan for the next three months. By starting after you get billing income, you can accurately create your business plan, instead of developing it from what you think might happen. This will give you a plan that is actually a valuable tool for running your business. 4. Set up your business housekeeping. Once revenue begins to come in, it s time to set up basic business housekeeping. There are multiple business types: a sole proprietorship, a partnership, a limited corporation, and a corporation. Most people in this business start as a sole proprietorship and then change business entities as they grow. You will next need a business name and at least a few minimum business basics: A business phone number and/or a cell phone with voice mail Business licenses Errors and omissions insurance Business letterhead and branded invoicing statements (these can simply be templates in Word or can be automated in accounting software) A business address A Web site Business cards with your contact information A nice brochure that details your business focus and skills A social media presence (pages on Facebook and Google+ and a Twitter account at a minimum, all of which need to be actively maintained) Of all of these, the brochure is the least important in today s environment; master social media and you ll master marketing (see #5) 5. Market your business effectively. The easiest way to promote yourself is by word of mouth. But in today s market, that isn t enough. The best way for a full-time consultant to market the business is to attend business conferences and meetings to meet potential clients. It s also a good idea to set up a booth at local business expos and hand out business cards with social and contact information. You can even do a giveaway, such as five free hours of consulting services. Have everyone fill out a form and drop it in a box. If you get 50 responses, you have 50 potential customers you can call to drum up business. A calendar year has 2,000 billable hours, based on a 40-hour week and an eight-hour billable day. This also takes into consideration a two-week vacation. So if you bill $30 an hour for 2,000 hours, in a year you would make $60K gross income. 2
3 The importance of social media in all of this absolutely cannot be underestimated. More importantly, it isn t enough to simply have a Facebook page or send out the occasional tweet. Rather, your presence in social media needs to be personal, authentic, and conversational. Engaging an audience of potential clients is an art rather than a science, but it is one that takes time and practice. 6. Deal professionally with the billing process. Most consultants hate to deal with billing paperwork, but you need to handle it diligently and professionally. Every hour you work, you must get a signed statement from the clients verifying that you billed those hours and then, once a month, send invoices to your clients requesting payment. By doing this up front, you will be sure that you get paid, and you can also cut off any client who has a problem with your work before you roll up a big invoice. It s unfortunate, but a lot of clients have no problem trying to put off paying you if they think they can get away with it. By establishing your professionalism at the outset and by billing monthly or weekly, your client will know that you mean business and that your work does have value. All of this needs to be backed up with a clear contract, agreed upon and signed at the outset of any project. Your presence in social media needs to be personal, authentic, and conversational. Engaging an audience of potential clients is an art rather than a science, but it is one that takes time and practice. 9. Set up a routine to help avoid pitfalls. Scope of work, precise deliverables, and realistic timelines all need to be completely understood by both you and the client. 7. What if you can t meet deadlines? If you realize that you can t provide a deliverable on time for some reason or another, you must tell your client as soon as possible. You may even have to negotiate free work or a reduction in fees to accommodate the customer. This happens to everyone sometimes. It isn t always your fault, but it is something you will have to learn to handle. It is also a contingency that needs to be outlined in your contract. 8. Be realistic about your cash flow. You have to know how much cash you need to keep your business going. Most businesses fail because they don t have enough cash to fund daily operations. Some business experts say you need at least three months of funds to get a business going; others say you need six months of cash in the bank. Everyone s situation varies, but it generally makes sense for new consultants to start while they still have a full-time job. That way, they won t have the cash flow pressures they d have if they went out on their own immediately. After you get a feel for what you can make, you can decide how much cash you need in the bank before you break out on your own. Consulting can be a lucrative business. It s definitely a way to become self-employed and make a good income, but it does have its pitfalls. The best way to avoid them is to set aside time weekly to review what you have planned for the next week: Are there any problems that I need to address with my current clients? Do I need to make any marketing meetings or calls this week? Are there any critical lunch meetings I need for the following week? How is my cash flow looking for this week and for the next four weeks? What deliverables do I need to make for the next week? 3
4 10. Solicit feedback from your clients. Even though you ve completed a project, your work isn t quite done. Follow up with clients to ensure that they re satisfied with the job you did. Asking for feedback also demonstrates that you value their business. You might want to ask them to complete an evaluation form, so that you can learn how they perceive your work and what areas you might need to improve upon. Some business experts say you need at least three months of funds to get a business going; others say you need six months of cash in the bank. 4
5 About Tech Republic TechRepublic is a ZDNet/CBS Interactive property that provides news, editorial content, and a wide variety of resources for IT professionals and businesses. TechRepublic frequently contracts with businesses and organizations to create custom content, webcasts, and other broadcasts of value to the larger IT community. About Citrix Citrix transforms how businesses and IT work and people collaborate in the cloud era. With marketleading cloud, collaboration, networking and virtualization technologies, Citrix powers mobile workstyles and cloud services, making complex enterprise IT simpler and more accessible for 260,000 organizations. Citrix products touch 75 percent of Internet users each day and it partners with more than 10,000 companies in 100 countries. Annual revenue in 2011 was $2.21 billion. Learn more at and REFERENCES Things You Need to Know to Succeed in Your IT Career; downloads/500-things-you-need-to-know-to-succeed-in-your-it-career/ Things You Need to Know to Succeed in Your IT Career, Volume 2; downloads/500-things-you-need-to-know-to-succeed-in-your-it-career-volume-2/ Carla Firey Five tips for developing the soft skills IT pros need ; 5
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